Africa PE, PP prices continue to rally on limited availability

09 February 2011 16:25[Source: ICIS news]

LONDON (ICIS)--Polyolefin spot prices in Africa have climbed a further $20-50/tonne (€15-37/tonne) this week, as producers succeeded in implementing their full February price targets, market sources confirmed on Wednesday.

Prices surged by a total of $80-190/tonne over January and February because of tight availability, rocketing feedstock costs and strong demand from Asia, which was expected to continue once buyers return to the market later this week following the Lunar New Year celebrations in China.

A number of traders and buyers agreed that it was becoming increasingly difficult to secure volumes, as manufacturers were opting to sell their limited quantities of material elsewhere, given the better netbacks in regions such as Europe, Turkey and even Asia.

The largest price increases this week were seen in the copolymer polypropylene (PP) market, where limited supply from Europe and the Middle East forced prices up by $40-50/tonne in northern Africa, leaving values at $1,760-1,800/tonne CFR (cost and freight) northern Africa, according to ICIS.

Homopolymer PP prices gained the most ground from the start of the year, as numerous production issues, planned maintenance outages and strong demand forced values up by as much as $190/tonne in the northern Africa market.

The upward price momentum also showed no signs of slowing in the coming weeks, although bids and offers were widening considerably.

Despite receiving little to no buying interest, producers were reluctant to drop their current offers for low density polyethylene (LDPE) and homopolymer PP – which were above$1,850/tonne and $1,700/tonne CFR, respectively, in many cases – as they anticipated that strong demand from China and limited volumes would force values up to such levels in the coming weeks.

“China has not woken up yet, but we expect a very positive response from the market given the cost of crude,” a southeast Asia-based producer said. “We have limited stocks, so if buyers do not accept our prices, we do not sell.”

However, for the majority of buyers, such prices were simply unworkable.

One PP consumer lamented: “It does not make sense to produce at these levels, and there are rumours of prices climbing further still. We are really struggling to pass this on to our buyers.”

This was echoed by trader, who said: “The speed [of the upward price movement] is frightening. It cannot last and consumers expect a drop, so they wait and do not buy. No one wants to have expensive stock when the price does drop.”

While many players felt that there would be no relief for buyers in the short term, there was a growing chorus that a downward correction was imminent.

A trader in southern Africa said: “All producers will try to push prices up in the next few weeks, arguing that the variable costs are up, but fundamentally the demand has not really changed since the middle of 2010.

“I’m concerned that the prices will fall fast once the availability becomes better and the buyers are thinking along the same lines.”

($1 = €0.73)

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